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We need to be more précised what are items the settlement substitutes.
Typically, an accident settlement contains two types of claims:
-- compensation for damaged property and
-- personal injury award.
See for reference IRS publication 525 page 31 - http://www.irs.gov/pub/irs-pdf/p525.pdf
Casualty insurance and other reimbursements. You generally should not report these reimbursements on your return unless you are figuring gain or loss from the casualty or theft.
So - any portion of your settlement paid for repairs to your car or that is less than your basis - is not included into taxable income.
see also on the same page:
Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).
However - if your settlement include any other compensations - such as interest, attorney fees, compensation for lost wages, punitive award, etc - these are taxable.
Let me know if you need any help.
There is no simple solution because each situation is so different.
The accident settlement value usually consists of following elements: -- medical bills-- lost income -- pain and suffering damages
In most situation - it is relatively simple to fund out your medical expenses and lost income - these are out-of-pocket expenses (so-called "specials").
If there is no serious or permanent injuries and the fault is clear - the accident settlement value is estimates by multiplying "specials" by the number between 1 1/2 and 4, depending on the circumstances of your case.
For example, if your medical bills and lost wages were $35,273(specials).
Depending on the other facts in the case, the accident settlement value of your claim is somewhere between $35,273*1.5 and $35,273*4 - or between $59910 and $141,090.